Chinese Economics Thread

[Michael90]

Rather than accept this macroeconomic recommendation, the Chinese government has responded to the growing signs of deflation with a misleading narrative about the need to regulate excessive competition. The clearest example of such "excessive" competition, especially for journalistic commentary—here the term "hook" is truly appropriate—is found in the Chinese electric vehicle industry. BYD, a world leader, recently surprised its competitors with the introduction of a new entry-level model, the Seagull, to which it is applying unprecedented price discounts.

Containing BYD's efforts to crush competition would not eliminate the deflationary risk in the Chinese economy. However, it is equally clear that for deflation to occur, companies must lower prices; therefore, to prevent deflation, companies must be convinced that they do not need to continue to reduce prices.

The problem is that It’s not just in automobile industry where this is happening (if it was on one or two sectors then I don’t think the government will be that worried), the issue is It seems to be the case in almost every(or vast majority) industry in China at the moment. Just recently for example in the food delivery sector the government had to intervene again lol

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China’s State Administration for Market Regulation (SAMR) convened a meeting on Friday with prominent online food delivery companies, including Alibaba Group Holding’s Ele.me, Meituan, and JD.com. According to a statement from the regulator, the purpose of the gathering was to urge these firms to adopt more “rational” competitive practices amid an ongoing price war that has dominated the market for months.

Per a statement issued by SAMR, the meeting focused on the need to “further regulate promotion behaviours, encourage rational competition, and foster a healthy ecosystem and win-win situation for consumers, merchants, delivery riders, and platform operators.”

 

[TPenglake]

Kind of goes without saying it seems most people living in Tier 1 cities today be it Beijing, Shanghai, Guangzhou etc. don't exactly have great things to say about the economy. From youth unemployment, to slower private sector hiring, to the enduring fallout of the property bubble, people are reigning in spending and tempering their expectations with respect to their finances. Even those with jobs don't really considers themselves lucky considering the poor work life balance of China's work culture.

However, the story seems to be different in China's heartland. Long considered a part of China ignored by the government in favor of the nation's East Coast cities, inland China is finally in the spotlight as economic optimism still persists and attracts not just investment but also Tier 1 and 2 dwellers either out of the job or fed up with the corporate rat race.

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[FriedRiceNSpice]

Kind of goes without saying it seems most people living in Tier 1 cities today be it Beijing, Shanghai, Guangzhou etc. don't exactly have great things to say about the economy. From youth unemployment, to slower private sector hiring, to the enduring fallout of the property bubble, people are reigning in spending and tempering their expectations with respect to their finances. Even those with jobs don't really considers themselves lucky considering the poor work life balance of China's work culture.

However, the story seems to be different in China's heartland. Long considered a part of China ignored by the government in favor of the nation's East Coast cities, inland China is finally in the spotlight as economic optimism still persists and attracts not just investment but also Tier 1 and 2 dwellers either out of the job or fed up with the corporate rat race.

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Raising incomes in underdeveloped regions will stimulate a far greater increase in aggregate demand due to higher marginal propensity to consume. This in turn will create more jobs in tier 1 and tier 2 cities as well, leading to the creation of a virtuous cycle. This is the polar opposite to the "trickle down economics" bullshit that contributed to the ruin of the American economy.

 

[TPenglake]

Raising incomes in underdeveloped regions will stimulate a far greater increase in aggregate demand due to higher marginal propensity to consume. This in turn will create more jobs in tier 1 and tier 2 cities as well, leading to the creation of a virtuous cycle. This is the polar opposite to the "trickle down economics" bullshit that contributed to the ruin of the American economy.

In the end, even if the Hukou system was imperfect, it proved its long term worth.

 

[Jiang ZeminFanboy]

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Holy crap, Xu is so based. Great article
Exactly my thinking. Why reduce production when you can just give money to consumers and buy it out the so called "excessive" production. And nothing bad will happen cause:

According to Xu, the conditions that permit the issuance of money without risk of inflation or financial crisis are i) inadequate domestic demand and ii) oversupply of productive capacity.

Both of these conditions happen to characterise the Chinese economy at present.

"When domestic demand is inadequate, increasing the money supply will not bring about inflation - in fact, it will help to ease deflationary pressure, and will not trigger macroeconomic instability," Xu writes.

Under such circumstances, Xu believes "the government can use money creation to repay domestic debt denominated in the national currency" without the need to worry about breakneck inflation.

"As long as a nation's productive capability is larger than its domestic demand (and the nation's domestic demand is inadequate) then its debt is sustainable...it can completely avoid a debt crisis" he writes.

For this very same reason, money printing can have severe inflationary consequences for nations where demand is excessive while production capacity remains inadequate.

A big beautiful growth will happen.

 

[Nevermore]

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Holy crap, Xu is so based. Great article
Exactly my thinking. Why reduce production when you can just give money to consumers and buy it out the so called "excessive" production. And nothing bad will happen cause:


A big beautiful growth will happen.

This is also the view of Didongsheng, a renowned Chinese scholar. He advocates debt expansion and strongly supports giving money to young people and newborns.

 

[henrik]

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Holy crap, Xu is so based. Great article
Exactly my thinking. Why reduce production when you can just give money to consumers and buy it out the so called "excessive" production. And nothing bad will happen cause:


A big beautiful growth will happen.

We have been saying this for a few years. They should print more money and give it to the consumers.

 

[AndrewS]

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Holy crap, Xu is so based. Great article
Exactly my thinking. Why reduce production when you can just give money to consumers and buy it out the so called "excessive" production. And nothing bad will happen cause:


A big beautiful growth will happen.

The thing to remember is that 40% of the population (560 million) lives on less than $10 per day ($3650 annually)

If the government was to spend an extra $1000 for each person, that would be $560 Billion annually, but should have a huge worthwhile impact.

I think China could print this money and it would be fine for 10 years.
But in the longer-term, I think Ray Dalio is right about excessive borrowing.

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At the same time, higher minimum wages should have a similar effect as well

 

[AsuraGodFiend]

We have been saying this for a few years. They should print more money and give it to the consumers.

Isn't china already doing this?

 

[Wrought]

Scrutiny on rare earth exports remains tight, down 38% YOY after shipments restarted, and with special attention paid to potential hoarding.

According to a survey by the US-China Business Council carried out last month, half of polled member companies said most of their applications for rare earths had been left pending or were rejected. China exported 3,188 tonnes of rare earth permanent magnets in June, more than double export volumes in May, but down 38 per cent from a year earlier. In the three months to June — since Beijing enacted the trade restrictions — magnet exports were about half the level by volume in the same period last year. The USCBC report said that large orders, especially a surge “higher than the applicant’s historical averages, attracted greater scrutiny to protect against perceived stockpiling”.

“Applications are also reviewed line by line,” it added. “Any discrepancies can result in the delay or return of the application.”

One way to prevent shortages is to move production within China, which is presumably encouraged.

The problem has led some western companies to shift production of finished products to China — a result that suits Beijing as it seeks to increase control of the supply chain. Louis Pinkham, chief executive of US-based motor maker Regal Rexnord Corp, said the company had moved some production to China in order to assemble rare earth magnets into products in the country and ease their export.

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